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CIRCULAR No

CIRCULAR No. 74/2002/TT-BTC OF SEPTEMBER 9, 2002 GUIDING THE REVALUATION OF THE STATE-RUN COMMERCIAL BANKS� OUTSTANDING DEBTS WITHOUT SECURITY ASSETS

In furtherance of the Prime Minister�s Decision No.149/2001/QD-TTg of October 5, 2001 approving the scheme for handling commercial banks� outstanding debts, the Finance Ministry hereby guides the revaluation of debts without security assets owed to State-run commercial banks by operating State enterprises, as follows:

I. GENERAL PROVISIONS

1. Scope of application:

This Circular applies to the revaluation of State-run commercial banks� outstanding debts without security assets, which become overdue as of December 31, 2000 with their debit balance still existing until the time of debt handling, and debtors being existent and operating State enterprises.

2. Objects of application:

Objects of application are State-run commercial banks and State enterprises, which are existent and operating, but not subject to dissolution or bankruptcy, and owe outstanding debts without security assets to State-run commercial banks.

3. Some concepts:

In this Circular, the following concepts are construed as follows:

a/ "Outstanding debts without security debts" are outstanding debt amounts for which the measures of pledge, mortgage or acceptance of assets given in lieu of debts owed by State enterprises, as well as other security measures such as guarantee with the third party�s assets, security with assets formed from borrowed capital, and reception of assets assigned by court, are not applied.

b/ "Revaluation of the State-run commercial banks� outstanding debts without security assets" means the determination of the value of assets actually possessed by State enterprises for repaying outstanding debts without security assets, aiming to figure out the actually remaining value of, and possibility to recover, the State-run commercial banks� outstanding debts without security assets.

4. General principles:

a/ The existent and operating State enterprises shall have to repay outstanding debts, including those without security assets, to creditors. In cases where they are insolvent or lack solvency, they must report such to the competent agencies for handling according to the current regulations.

b/ The determination and revaluation of outstanding debts without security assets aim to help the State-run commercial banks appraise practical possibilities to recover such debts.

c/ The determination of the value of enterprises� assets for the purpose of revaluing outstanding debts without security assets shall only apply to the determination of the actually remaining value of, and possibility to recover, the State-run commercial banks� outstanding debts without security assets. It shall not apply to the determination of the actually remaining value of, and possibility to recover, the outstanding debts without security assets of other creditors as well as the readjustment of asset value on the enterprises� accounting books.

d/ The State-run commercial banks shall have to classify debts, compile dossiers thereof and take initiative in handling outstanding debts under the State Bank�s guidance. Particularly for outstanding debts without security assets, which need to be revalued, the State-run commercial banks shall, together with the enterprises, conduct the revaluation thereof according to the provisions of this Circular. In cases where many State-run commercial banks have their outstanding debts without security assets in one State enterprise, they shall have to coordinate with one another in conducting the revaluation and determination of the actually remaining value of each bank�s outstanding debt without security assets (with the prime responsibility therefor assumed by the biggest creditor-bank).

II. VALUATION METHODS

1. Determination of the value of enterprises� assets:

1.1. Total value of enterprises� assets is the value of all assets (current assets and short-term investments, fixed assets and long-term investments) currently recorded on accounting books and under the ownership, management and use by enterprises at the time of debt handling, including the land use right value in cases where enterprises mortgage such land use right as security for loans.

a/ Bases for determining the value of assets:

- Documents, vouchers and accounting figures of enterprises available at the time of determining the actually remaining value of debts without security assets, and financial statement of the latest quarter.

- Quantity and quality of assets according to the result of the latest inventory as well as the result of the classification of enterprises� assets at the time of determining the actually remaining value of outstanding debts without security assets.

- Technical specifications, use demands and market prices of assets at the time of determining the actually remaining value of outstanding debts without security assets.

- Land use right value in cases enterprises mortgage such at prices at the time of mortgage as security for loans.

b/ Methods for determining the asset value:

- The value of enterprises� assets shall be determined according to their quantity and prices or their balance recorded on accounting books at the time of making the financial statement of the latest quarter.

+ For fixed assets and current assets, their value shall be calculated according to their quantity and prices recorded on accounting books at the time of making the financial statement of the latest quarter.

+ For assets being capital in cash, receivable amounts, uncompleted expenses (including production and business expenses, non-business expenses, construction investment expenses), assets in short-term and long-term deposits or escrow accounts, assets for short-term or long-term investments, their value shall be calculated according to the actual balance on accounting books at the time of making the financial statement of the latest quarter.

+ For intangible assets, their value shall be calculated according to their remaining value currently accounted on accounting books.

- The revaluation of assets� value shall only be made in the following cases:

+ Unused assets, assets awaiting liquidation, supplies in stock or of inferior or degenerated quality shall be revalued according to the classified quantity and prices of recoverable assets (excluding debt security assets).

+ Expenses for capital construction of uncompleted projects, which have been suspended from construction before the time of debt handling (excluding projects used as debt mortgage), shall be revalued according to recoverable prices.

1.2. Value of assets for determining the debt repayment capability shall be equal to (=) the total value of enterprises� assets (calculated according to Item 1.1, Clause 1, Section II) minus (-) the value of the following assets:

a/ Assets belonging to the State reserves left at enterprises.

b/ Assets being social-welfare works: creche, kindergartens, health clinics and other welfare assets invested with the Reward Fund and Welfare Fund; dwelling houses of officials, employees and workers, including those invested with the State budget capital.

c/ Irrecoverable receivable debts (after cleared against the bad debt reserve). Irrecoverable receivable debts as prescribed in Article 5 of the Government�s Decree No.69/2002/ND-CP of July 12, 2002 include the followings:

- Receivable debts which have not yet been recovered from debtors being enterprises and/or organizations whose dissolution or bankruptcy was already completed. Receivable debts owed by debtors that have ceased their operations and are insolvent.

- Receivable debts owed by debtors being individuals who are deceased, missing or currently serving imprisonment sentences, and have no lawful heirs or their heirs under court�s rulings are incapable of repaying debts; or who are prosecuted, held in custody or detained, or tried by law bodies but have enough evidences proving that debts are irrecoverable.

- Receivable debts of agricultural cooperatives, which have already been dissolved or transformed and made business registration according to the Government�s Decree No.16/CP of February 12, 1997 but meet with great financial difficulties (bearing business losses), which render them incapable of repaying debts, and of operating agricultural cooperatives (conducting profitable business), and such debts have been invested in infrastructural works, which have, however, been damaged or destroyed by natural calamities, storms or floods, and therefore eligible for debt remission by the State.

- Receivable debts of debtors that enjoy remission under decisions of competent agencies according to the provisions of law.

- Remainders of irrecoverable debts after they are handled with material compensations by liable individuals and/or collectives.

- Losses due to sale of receivable debts.

- Receivable debts with their values smaller than estimated expenses for claiming them.

- Receivable debts, which have become overdue for three years or more, with debtors still existent and operating but suffering from business losses or meeting with great difficulties which render them incapable of repaying their debts, and are still irrecoverable despite that the enterprises have actively applied numerous measures.

1.3. The value of assets for determining the capability to repay debts without security assets shall be equal to (=) the asset value for determining the debt repayment capability (calculated according to Item 1.2, Clause 1, Section II) minus (-) the followings:

a/ Value of assets already pledged, mortgaged, given in lieu of debts or as guarantee for the third party, security assets created from borrowed capital, assets assigned by the court to other units (debt security assets).

If the actual value of debt security assets is smaller than that of secured debts (regarding each debt), such asset value shall serve the calculation. If the actual value of debt security assets is equal to or larger than that of secured debts, such debts� value shall serve the calculation;

b/ Debts owed to officials, employees and workers (including severance allowance);

c/ Social insurance premium arrears;

d/ Balance of the reward fund and welfare fund.

2. Determination of the coefficient of capability to repay debts without security assets:

Coefficient of Value of assets for determining the capability to

capability to repay debts without security assets

repay debts = ��������������������������

without Total Debts with Debts owed Social

security assets payable - security - to officials, - insurance

debts assets employees premium

and workers arrears

* The total payable debts: According to the latest quarter�s financial statement with code name 300 and form No. B01-DN.

3. Determination of the actually remaining value of outstanding debts without security assets:

The coefficient of capability to repay debts without security assets (calculated according to Clause 2, Section II) and outstanding debts without security assets owed to State-run commercial banks shall serve as basis for determining the actually remaining value of outstanding debts without security assets owed to such State-run commercial banks (within this Circular�s application scope and objects).

If the coefficient of capability to repay debts without security assets is larger than or equal to (�) 1, the actually remaining value of outstanding debts without security assets shall not be re-determined. If such coefficient is smaller than (<) 1, the actually remaining value of outstanding debts without security assets shall be re-determined according to the following formula:

Actually remaining Value of Coefficient

value of outstanding outstanding debts of capability

debts without = without security x to repay debts

security assets of assets of without security

commercial banks commercial banks assets

In cases where many State-run commercial banks have outstanding debts without security assets at one State enterprise, the actually remaining value of each State-run commercial bank�s outstanding debt without security assets shall be determined.

4. Determination of the lost value of outstanding debts without security assets:

The lost value of outstanding debts without security assets is the difference between the value of outstanding debts without security assets recorded on accounting books and the actually remaining value of such debts.

5. Handling of outstanding debts without security assets after the revaluation:

a/ For State enterprises:

Outstanding debts without security assets, after being revalued, jointly appraised by the Finance Ministry and the State Bank and approved by the Steering Board for financial restructuring of commercial banks, shall be acknowledged by enterprises with banks at the revalued prices and repaid according to the current regulations or converted into banks� stock capital contributions to joint-stock companies (in cases where such enterprises are undergoing equitization) after the enterprises reach agreement thereon with banks.

The difference between the value of outstanding debts without security assets recorded on accounting books and the value of such debts after being revalued shall be accounted into irregular income for offsetting enterprises� losses or irrecoverable receivable debts (if any).

b/ For State-run commercial banks:

- They shall urge the repayment of outstanding debts without security assets, after the debts have been revalued and approved by the Steering Board for financial restructuring of commercial banks, according to the current regulations, or reach agreement with enterprises on conversion thereof into their stock capital contributions to joint-stock companies (in cases where such enterprises are undergoing equitization).

The difference between the value of outstanding debts without security assets recorded on accounting books and the value of such debts after being revalued (excluding the outstanding debts already handled with the risk reserve and put outside asset balance sheets) shall be accounted by commercial banks into their irregular expenses. The State budget shall allocate capital to commercial banks according to the scheme for handling commercial banks� outstanding debts approved by the Steering Board to offset such difference.

- In cases where enterprises are eligible for capital supplementation, the Finance Ministry shall consider and decide to convert the actual remaining value of debts into supplementary capital allocations by the State to the enterprises, and at the same time the State budget shall allocate offset capital to State-run commercial banks in proportion to their outstanding debts according to the scheme for handling outstanding debts approved by the Steering Board from the Prime Minister-approved funding source for the reform of State enterprises and commercial banks.

III. ORGANIZATION OF THE REVALUATION OF OUTSTANDING DEBTS WITHOUT SECURITY ASSETS AND APPRAISAL OF ITS RESULTS

1. The State-run commercial banks:

a/ To identify loans and borrowers subject to debt revaluation in strict compliance with the guidance in this Circular and relevant documents, then report them to the Finance Ministry and the State Bank of Vietnam.

b/ To assume the prime responsibility and coordinate with State enterprises, provincial/municipal Finance and Pricing Services, superior managing agencies of enterprises (the branch-managing ministries or corporations) in organizing the determination of the value of enterprises� assets as well as the actually remaining value and the lost value of debts without security assets under this Circular�s guidance, then make reports thereon according to the set form.

c/ To make reporting dossiers on results of the determination of actual remaining value of each debt without security assets. Each reporting dossier comprises:

- Copies of the capital-borrowing contract and relevant documents evidencing that the enterprise still owes the bank.

- Written record on the determination of the actual value of the enterprise�s assets and the actually remaining value of debts without security, made by the commercial bank and the enterprise.

- The 2000 financial statement and the latest quarter�s financial statement of the enterprise, which shall serve as basis for determining the value of the enterprise�s assets.

- Accompanying written explanations.

d/ To sum up reports on results of the determination of the actually remaining value of debts without security according to forms No.3, 3A, 3B, 5, 5A and 5B enclosed with the Vietnam State Bank�s Official Dispatch No.174/NHNN-TD of February 21, 2002 guiding the handling of overdue, bad and outstanding debts without security assets. And to propose handling measures.

Reports on results of the determination of the actually remaining value of debts without security shall be enclosed with the reporting dossiers prescribed at Point c, Clause 1, Section III above, and sent to the State Bank and the Finance Ministry for appraisal, sum-up and submission to the Steering Board for financial restructuring of commercial banks for consideration and decision.

2. State enterprises:

a/ To determine their assets� value in order to calculate and analyze their capability to repay debts according to the criteria prescribed in Clauses 1, 2, 3 and 4, Section II above, and at the same time base themselves on the current regimes and their actual financial situations to propose debt-handling measures. To make reports according to the above-said contents and send them to commercial banks being their creditors and to the finance agencies of the same level.

b/ To coordinate with State-run commercial banks and relevant agencies in conducting the determination of their assets� value and revaluation of outstanding debts without security assets for the purpose of determining the actually remaining value of debts according to the provisions of this Circular.

c/ To fully supply their accounting figures and notify their financial situations as requested to State-run commercial banks and the Council for appraisal of the revaluation of debts without security assets.

3. The State Bank of Vietnam:

a/ To assume the prime responsibility and coordinate with the relevant agencies in guiding, directing and urging the State-run commercial banks to organize the determination of the actually remaining value of debts without security assets according to the Prime Minister�s Decision No.149/2001/QD-TTg of October 5, 2001 and the provisions of this Circular.

b/ To guide and direct the State-run commercial banks in drawing up the list of enterprises having loan debts without security assets, which are subject to the revaluation, specifying the aggregate value of each debt, and at the same time join the Finance Ministry in appraising dossiers on determination of the actually remaining value of debts without security, compiled by the State-run commercial banks and State enterprises.

c/ To sum up and report on the situation and result of the determination of the actually remaining value of debts without security assets, handle such debts according to their competence and propose handling measures to the Finance Ministry and at the same time submit to the Prime Minister for handling debts beyond their handling competence.

4. The Finance Ministry:

a/ To assume the prime responsibility and coordinate with the State Bank in appraising dossiers on determination of the actually remaining value of debts without security, compiled by State-run commercial banks and State enterprises.

b/ To make allocations to offset differences arising from outstanding debts without security assets under the scheme for handling outstanding debts with the funding source for the reform of enterprises and commercial banks, already approved by the Prime Minister.

c/ To join the State Bank in summing up and reporting on the situation and result of the determination of the actually remaining value of debts without security, and propose measures for handling debts beyond their handling competence to the Prime Minister for consideration and decision.

d/ Basing itself on the sum-up report on the result of the determination of the actually remaining value of outstanding debts without security and reporting dossiers of the State-run commercial banks, to set up the Council for appraisal of the revaluation of debts without security assets.

- The Council shall be composed of:

+ A representative of the Finance Ministry, as the Council Chairman,

+ A representative of the State Bank, as a member,

+ Representatives of the central-level commercial banks, as members.

+ Representatives of the commercial banks� branches in localities (where exist debts without security assets), as members.

In case of necessity, the Council may invite representatives of provincial/municipal Finance-Pricing Services and superior managing agencies of enterprises (branch-managing ministries or corporations).

- The Council for appraisal of the revaluation of debts without security assets has the following tasks:

+ To appraise dossiers and reports on the result of the determination of the actually remaining value of each debt without security assets of State-run commercial banks according to the provisions in Clause 1, Section III of this Circular.

+ In case of necessity, it shall work with concerned enterprises to re-appraise the results of the determination of the value of enterprises� assets as well as the value of enterprises� debts without security assets.

The Council�s appraisal results shall be recorded in writing, with all signatures of its official members according to the set form.

5. The ministers, the heads of the ministerial-level agencies, the heads of the agencies attached to the Government, the presidents of the People�s Committees of the provinces and centrally-run cities and the corporations� managing boards shall coordinate with the Finance Ministry and the State Bank in directing enterprises in organizing the determination of the actually remaining value of debts without security according to the provisions of this Circular.

IV. IMPLEMENTATION PROVISIONS

This Circular takes effect 15 days after its signing and applies to the revaluation of the commercial banks� outstanding debts without security assets for the purpose of determining the actually remaining value of such debts for handling thereof according to the Prime Minister�s Decision No.149/2001/QD-TTg of October 5, 2001.

The concerned units shall propose their opinions regarding any problems arising in the course of implementation to the Finance Ministry for study and solution.

For the Finance Minister

Vice Minister
TRAN VAN TA